Tuesday, June 3, 2014

A central challenge for left critiques of capitalism as it exists
today is the distance between the mythologies that craft understanding
of the issues for the great majority and more probable explanations
based on examination and analysis. The issues are that concentrated
wealth is claims on social resources; that wealth ‘creation’ is an
artifact of particular arrangement of social circumstances / relations
and that wealth distribution is the social distribution of economic and
political power. Concentrated wealth as it exists is hardly likely to
distribute this power away from itself. And conspicuously missing is
class-consciousness in any revolutionary sense amongst the poor and
middle classes whose circumstances in the ‘developed’ West are in rapid
decline. Taken together this is a formula for escalating consolidation
of economic and political power against people who have little apparent
understanding of the economic forces that are overtaking them. Were it
not for the risk of growing political and economic dysfunction and its
likely effects in social and environmental catastrophes— wars for
resources to benefit the residual plutocracy, the inability to address
global warming because doing so lowers corporate ‘profits’ and the
increasing immiseration of a broadening swath of the socially
dis-empowered, concern might rightly be considered effete.

For instance, a survey of public perceptions
of wealth distribution undertaken by Michael Norton and Dan Ariely in
2011 found wide disparities between wealth distribution as it is
perceived and as it actually is. Even that study grossly understated the
concentration of income and wealth because the researchers were working
with overly broad categories—quintiles, or fifths, of wealth
distribution when the real concentration is at the very top. On the
other side of public perceptions is the tiny group of very wealthy who
see their wealth, even inherited wealth, as deserved, and who frame
challenges to the idea that it is in psychological terms, as ‘envy.’
Adding to social misdirection is the mainstream economic frame that
views concentrated ‘capital’ in some confused conflagration of money,
quasi-money and things as the prerequisite to economic production. The
predominant economic mythologies surrounding income and wealth
distribution clearly work the service of the very rich.

Graph (1) above: Most people have no conception of how
concentrated incomes and wealth are at the very top. When Norton and
Ariely (link above) asked people what they believed this concentration
to be respondents tended to underestimate concentration in the top 20%.
Illustrated above is that even within the top 10% of incomes average
executive compensation is so great that the average top incomes are
barely visible. With the extremes illustrated in this graph as evidence,
looking at the issue in quintiles, as Norton and Ariely did, obscures
more than it illuminates. But this written, the authors found that even
when viewed in quintiles there was broad objection to such concentrated
incomes and wealth. One can only imagine responses if the issue were
more precisely framed. Sources are the Federal Reserve Survey of
Consumer Finances and Forbes. Units are in thousands of dollars.

Capitalist mythology has it that incomes and wealth are largely
‘earned.’ This myth unites the wages of the poor and middle classes in
social understanding with those of the very wealthy in a hierarchy of
justly differentiated outcomes—the incomes and wealth of hedge fund
managers and corporate executives are perceived to be analogous to the
paychecks received by truck drivers and service workers, only larger. In
fact, through expression of social power in ‘public’ policies that
decide which industries get subsidized and bailed out and through
granting monopoly and cartel privileges to favored industries and
industrialists, the incomes and wealth of the wealthy are not
commensurate with the wages of labor in either type or scale. The
contrived division of economic and political power that is a central
precept of capitalist democracy serves to hide the role of concentrated
wealth in crafting ‘political’ decisions that benefit the already
wealthy. This is the central factor driving perceptions of political
dysfunction in the West when the political system is working just as the
plutocracy wishes it to work.

Graph (2) above: The growth of finance and the rise in financial
asset prices has played a large role in inflating executive
compensation. Captive Boards of Directors grant huge stock options to
corporate executives who now earn hundreds of times more than their
workers do. The mythology that the stock market reflects the ‘true’
value of companies ignores the role of the Federal government and the
Federal Reserve in subsidizing corporate profits and in raising stock
prices through monetary policies specifically designed to do so. Source:
Forbes.

One reasonably well-known example of the public sources of corporate ‘profits’ is Wal-Mart,
which is dependent upon government subsidies of both its customers and
its employees. The heirs to the Wal-Mart ‘fortune’ are individually
amongst the richest people in the world. Wal-Mart employees are the
largest beneficiaries of Medicaid and food stamp expenditures in a
number of states and the company has admitted (link above) that its
sales and revenues are dependent on food stamp (SNAP– Supplemental
Nutrition Assistance Program) payments to its customers. Another way of
saying this is that many Wal-Mart employees couldn’t afford to work for
the company if Federal and state governments weren’t subsidizing their
paychecks and many of its customers couldn’t afford to shop at Wal-Mart
if they didn’t receive food assistance. Left un-addressed is the use of
coerced and / or sweatshop labor to manufacture the products Wal-Mart
and the rest of ‘retail’ America sells. The use of overseas labor
requires a subsidized global infrastructure for the transfer of
resources, a standing army to assure repatriation of profits and the
social means of coercing labor at ‘profitable’ wages. Historical
examples of this latter tendency can be seen in U.S. military invasions
throughout Central and South America and Haiti when the institution of
higher minimum wages was threatened.

Graph (3) above: The pretense / premise of Western economics is
that ‘we are all in this economy together.’ This was / is the improbable
foundation that has kept variations on ‘trickle-down’ economics alive
in economics departments across the West. Without apparent irony or much
public comment is that executive compensation and the need for food
assistance have risen in tandem since the 1980s. The need for food
assistance is evidence of severe poverty. Not illustrated is the rapid
increase in those living at half of the poverty level or less since
financial asset prices and executive compensation began to ‘recover’ in
2009. Sources: U.S. Department of Agriculture and Forbes.

As can be seen in Graph (2) above, in addition to government
bailouts, subsidies and protections that boost corporate profits, a
rising stock market also contributes to inflated executive compensation.
Many people believe / assume that the stock market is unaffected by
‘external’ factors and therefore reflects ‘true’ market values for
company stock. In fact, in recent decades the ‘monetary’ policies of the
Federal Reserve have been designed to inflate the values of financial
assets. Low interest rates affect the price of the borrowing (leverage)
used to buy financial assets on margin and quantitative easing (QE) is
the direct purchase of financial assets by the Federal Reserve. Interest
rates intentionally kept low by former Fed Chair Alan Greenspan
inflated the dot-com and housing bubbles and the policies of subsequent
Fed Chairs Ben Bernanke and Janet Yellen have re-inflated financial
asset prices since 2009. There is nothing ‘natural’ about these
sequential bubbles. Through the role that rising stock prices play in
inflating executive compensation and the salaries and bonuses of bankers
and hedge fund managers a tiny group of connected insiders has been
made wealthy beyond the conception of most people. And the low interest
rate policies of the Federal Reserve can also be seen as a subsidy of
corporate profits through lowering the borrowing costs of corporations.

Graph (4) above: There are multiple ways of valuing the stock
market. Most of those in use today incorporate the extreme valuations of
the dot-com bubble of the 1990s and 2000s thereby making recent
valuations appear more typical than they really are. When compared to
long term corporate earnings (CAPE—Cyclically Adjusted Price Earnings)
‘cycles’ over one-hundred and thirty-five years of stock market history
today’s valuations are very far above typical valuation levels and are
currently at levels only seen a few times before in history at bubble
peaks. With executive compensation coming from bubble level stock market
valuations corporate executives can try to claim that they’ve ‘earned’
their compensation. But the more plausible explanation is that the
Federal Reserve and a financial system run amok are far more responsible
for it. Source: Robert Shiller.

Graph (5) above: Part of the explanation that the Federal Reserve
gives for policies favoring the rise in financial asset prices is the
‘wealth effect,’ the tendency for people to spend more because they feel
richer when stock prices rise. While some statistical analyses suggest
that this may be true, who benefits from rising stock markets are the
people who own stocks. As is illustrated above, the richest
twenty-percent of households own almost all of the stock market. Again,
as with income distribution, the true concentration of ownership of
financial assets is at the very top of the top ten percent. Federal
Reserve policies to raise stock prices overwhelmingly benefit already
wealthy households. As Graph (3) illustrates, the contention that
everyone benefits from policies to make the rich richer faces the
reality that extreme poverty is rising as the rich are being made
richer.

The great misdirection of Western economics in recent decades is
conflation of financial wealth with economic ‘value’ creation.
Apparently left unconsidered by much of the ‘income inequality’ crowd is
that were financial asset prices to implode, as they did in 2001 and
again in 2008, some fair proportion of the mechanism of concentrated
income and wealth distribution would implode with it. This goes far in
explaining the complete devotion of the political and financial
establishments to resurrecting banking and finance since 2008 while
ignoring the plight of the vast majority on the other side of this
system. Many of the homes of the housing boom and bust are still
standing but under new ownership by the financiers who took them, the
role of finance in economic production exists as facilitator and not as
producer. The role of facilitator could come straight from Western
governments through their ability to create and distribute fiat currency
‘out of thin air.’ That this wasn’t the route taken from 2008 forward
illustrates the control that the existing plutocracy has over
‘political’ policies. The real tragedy is still underway— the incapacity
for social and environmental reconciliation without major social
upheaval. Anyone who doubts this should spend time with the flaccid hallucinations posed as economic ‘explanation’ coming from the banker ghettoes in New York and London.